Wall Street: Thursday close

BLUE-CHIP stocks fell but bonds rose as oil prices hit fresh two-year highs on the growing threat of war and worries about the economic and corporate outlook. The dollar fell as it became increasingly clear that the United States had failed to rally support for a more forceful disarmament of Iraq.

Investors are still grappling with questions about a possible war after Secretary of State Colin Powell made his case against Baghdad to the United Nations. War jitters have spurred a sharp sell-off in recent weeks that has erased the market's early 2003 rally, and pushed the Dow down to lows last seen in mid-October.

Weak forecasts from companies like Agilent Technologies and a surprisingly soft report on worker productivity also helped dampen the mood. 'The geopolitical atmosphere continues to be an overhang on the market,' said Dan McMahon, head of listed trading at CIBC World Markets. 'Markets don't like uncertainty. They want some resolution. Are we going in? Are we not? If we are going in, is it going to be as clean and surgical as everyone is hoping?''

The Dow Jones Industrial Average fell 55.88 points, or 0.7%, to 7929.30, and the broad Standard & Poor's 500 Index slipped 5.44 points, or 0.64%, to 838.15. The Nasdaq Composite Index was almost unchanged, up 0.23 points, or 0.02%, at 1301.73. The tech-laden index has fallen almost 11% from its 2003 peak on 14 January.

Higher volume on the New York Stock Exchange than on Nasdaq suggests the sell-off in technology stocks may be winding down, some traders said. 'The people who wanted to get out of the Nasdaq and tech sectors are pretty much out, the sellers are done,' said Robert Mikkelsen, managing director of institutional sales and trading at The Advest Group.

The US Labour Department reported before the opening bell that productivity reversed in the final quarter of last year, falling far short of forecasts. Growth in productivity, which measures the level of goods and services produced for each hour of work, is cited as a key factor in an economic recovery. 'It's more evidence the economy is having a continued sluggish recovery,' said Edgar Peters, chief investment officer at PanAgora Asset Management, which manages $15bn.

Wall Street is braced for Friday's US employment report, searching for more clues as to whether economic growth is regaining momentum.

A few pockets of strength emerged in the session. Swedish telecoms gear maker Ericsson jumped 8% after naming a new new chief executive, and retailers like Gap rallied on higher January sales.

Concerns are growing that an increasing number of companies delaying investment decisions amid the uncertainty of war could stifle a rebound in the economy and corporate profits.

Dell Computer slipped 15 cents to $24.02 after chief operating officer Kevin Rollins said corporate spending on technology will be soft this year due to the weak economy and concerns about a potential war.

Agilent, an electronics and testing equipment maker, sank $4.06, or 25%, to $12.26 and ranked as the biggest percentage faller on the NYSE. The company warned that it will fall far short of estimates as customers defer purchases.

El Paso Corp, the largest US pipeline company, slumped $1.16, or 19%, to $5.04. Wall Street investment banks soured on the company a day after it said it would cut its dividend 82%, sell an extra $2.9bn in assets, and cut capital spending.

Royal Dutch/Shellfell $1.46, or 3.5%, to $40.04. The company produced Europe's biggest corporate profit of 2002 but its shares sank on war worries and fears of an end to the oil price boom that powered its earnings.

Gap, however, rallied 55 cents, or 4%, to $15.53 and ranked among the New York Stock Exchange's most actively traded shares. The number one US clothing chain said January sales at stores open at least a year rose 16% and forecast quarterly earnings above expectations on good results from its holiday merchandise and a more favorable tax rate.

Other retailers underpinned the Dow. Home improvement retailer Home Depot rose 32 cents to $21.63, and Wal-Mart, the world's largest retailer, gained 5 cents to $46.79.